The coronavirus crisis will leave millions of families facing a collective personal debt tsunami of £6.1 billion, one of the UK’s most notorious debt charities warns today.
The government should provide £5bn in grants to those most financially affected so they can pay their debts, put in place payment schemes for those who are behind on their council taxes and turn Universal Credit five weeks in advance into a grant in most cases, StepChange said.
Its chief executive, Phil Andrew, said the cost of not getting involved would be greater than the cost of the recommendations it outlined.
StepChange has estimated that 2.8 million people have fallen behind on their bills since the coronavirus lockdown began
“The misery, damage and economic hurdle that will inevitably follow the pandemic can and should be mitigated through public policy, and the approaches we propose are the biggest game-changers,” he said.
A StepChange survey of 3,796 adults at the end of May found that 28 percent had had their incomes affected by the virus, with this rising to 45 percent for those with problem debt.
From the figures it was estimated that the 4.6m people financially affected by the virus were £6.1bn in red, or £1,076 in arrears and £997 in debt each.
Figures from the Office for National Statistics show that an estimated 5.3 million people were concerned about their household finances being affected as a result of the virus.
Although figures from the Bank of England found that Britons in general borrowed less in March and April and saw their credit and other personal debts drop as a result, there are fears that people will soon need to turn to debt in order to get by.
One-fifth of people surveyed by DIY investment platform AJ Bell at the start of May said they had borrowed to pay for necessities and 30 percent had dipped into their savings to do so.
The numbers from StepChange seem to indicate that the situation is getting worse in some parts of the country.
Affected by their financial situation ranks third on the list of what people worry about most, according to a survey by the Office for National Statistics published last month.
“A wide swath of the population has been affected, but it is more likely that people who are younger, female, responsible for children or working in unsafe work may have experienced a negative impact,” the charity said.
It found that 44 per cent of the financially disadvantaged who earned less than £30,000 had defaulted on bills or had taken out a loan to pay them.
StepChange has called for the introduction of a recovery strategy for households, asking local councils to offer payment schemes for those who default on their council tax, utility regulators to support those struggling to pay their bills, and a £5 billion fund to support those who have fallen through the holes in their schemes. other government support.
She said the fund should be established “to provide grants to families adversely affected by the coronavirus to pay off arrears and accumulated debts to pay necessities during the crisis.”
While at the end of March the government announced a £500m fund to provide council tax breaks for those affected, which could give low-income earners £150 off their bills, those in arrears of council tax could run into big trouble.
This is because defaulters may require the defaulters to pay the remainder of the annual council tax bill all at once, otherwise the debt collectors may become involved.
According to an April poll by Citizens Advice, more people are expected to be behind on their council tax than any other bill
Citizens Advice recommends that anyone having trouble with their bills speak to their council to ask if they can pay what they owe with less.
Figures from a poll of more than 2,000 people conducted by the charity in April suggest that more people expect to default on their council tax than any other bill.
StepChange’s call for affordable council tax arrears payment schemes has been supported by the charity Money Advice Trust.
External Affairs Director Jane Tully said: ‘As StepChange rightly demonstrates, it is critical that families receive continued protection from collection and enforcement activity on council tax and other bills as the Government’s temporary support measures commence.
In relation to council tax, we call on the Government to provide a ‘prior action protocol’ for councils to follow before council tax arrears are introduced.
With millions at risk of defaulting on their bills, this would prevent a worsening of a bad financial situation due to the heavy debt collection practice.
“I would encourage anyone concerned about their finances to seek free debt advice from a charity-run service as soon as possible.”
StepChange estimated that the average of the 4.6 million people affected financially by the virus had £6.1 billion in debt and arrears at the end of May. The figures have been described as a tsunami of personal debt
StepChange has also called on the Financial Conduct Authority to extend repayment holidays for unsecured debts such as credit cards and personal loans for another three months, which the regulator is currently in talks with banks over.
Phil Andrew added: ‘Like other debt charities, we are preparing for a significant increase in demand for our regular services.
We are also working on a specific solution to help people whose finances have been hit by the pandemic and who need a short-term helping hand to get back on track without jeopardizing their credit standing.
The false calm in which we find ourselves while vacation and indulgence bear the pressure will not last indefinitely.
“We will be ready to help as more people find their debt problems take shape over the coming months.”
The Treasury is providing £38m to debt counseling providers
The Treasury responded to StepChange’s call on Monday by offering debt counseling providers £37.8m in 2020-21, earmarked by the Money and Pensions Service over the coming weeks.
Chancellor of the Exchequer John Glenn said: ‘We know some people are struggling with their finances during this difficult time, which is why we want to make sure people can access the help and support they need to manage their debt and get their finances back on track. .
The co-financing package will help debt counselors to continue – and increase – their vital work.
This additional funding comes on top of an unprecedented package we have put in place to support people, businesses and the economy through the coronavirus outbreak.
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